VZCZCXRO3209
OO RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHC #8607/01 1072254
ZNR UUUUU ZZH
O 172236Z APR 09
FM SECSTATE WASHDC
TO ARAB LEAGUE COLLECTIVE IMMEDIATE
INFO RUEHTV/AMEMBASSY TEL AVIV IMMEDIATE 7896
RUEHJM/AMCONSUL JERUSALEM IMMEDIATE 4764

UNCLAS SECTION 01 OF 02 STATE 038607 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN KWBG PGOV IS
SUBJECT: REQUEST DELIVERY OF NON-PAPER: RESPONDING TO 
ALLEGATIONS OF CORRUPTION IN PALESTINIAN AUTHORITY 
 
¶1. This is an action request.  Please see paragraph 3. 
 
¶2. Some Arab states have raised allegations of corruption and 
non-transparent governance as reasons not to provide direct 
budget support to the Palestinian Authority (PA) government 
of President Mahmoud Abbas and Prime Minister Salam Fayyad. 
The Department requests that Posts deliver the non-paper in 
paragraph 4 to relevant interlocutors to respond to these 
allegations and urge immediate budget support. 
 
¶3. Posts may draw on the following talking points when 
delivering the non-paper: 
 
-- Under President Abbas and Prime Minister Salam Fayyad, the 
PA has made great strides in establishing transparent and 
accountable government, which have been endorsed by the World 
Bank and the International Monetary Fund. 
 
-- The U.S. provided $300 million in direct budget support to 
the PA in 2008 - well above our 2007 Paris pledge - after 
determining that the PA had instituted the proper financial 
control systems.  The Secretary has asked Congress to provide 
funding for another large cash transfer in the FY2009 Spring 
Supplemental. 
 
-- Having exhausted its reserves and credit, the PA needs 
$100 million in foreign donor assistance this month to pay 
salaries on May 6, meet regular educational, health and 
police expenses, and to pay private sector suppliers. 
 
-- We believe that the PA is using donor contributions 
wisely, in a transparent and accountable manner, and that the 
PA faces the extreme deficit that it claims.  We urge you to 
act on the same set of beliefs and provide immediate support 
to the PA. 
 
 ¶4. Start non-paper: 
 
Financial Accountability and Transparency in the Palestinian 
Authority 
 
The Palestinian Authority (PA) has made great strides in 
establishing transparent and accountable government, which 
have been recognized by international donors and the 
international financial institutions.  As a testament to the 
reforms that the PA has made, the United States provided the 
PA with two separate tranches of budget support totaling $300 
million in calendar year 2008.  Before transferring U.S. tax 
payer dollars to the PA, Congress required, and the Deputy 
Secretary of State certified, that the PA had established a 
single treasury account for all PA financing and that all 
financing mechanisms flow through the account; eliminated all 
parallel financing mechanisms outside of the treasury 
account; and established a single comprehensive civil service 
roster and payroll.  In addition, as part of the transfer 
agreement, the PA agreed to provide the U.S. Agency for 
International Development with audit rights for up to three 
years following the cash transfers to ensure that the funds 
are used for their intended purpose. 
 
The World Bank and IMF have endorsed the PA's budgetary and 
financial controls and account for its responsible use of 
budgetary assistance from donors, which totaled in excess of 
$1.7 billion in 2008.  The PA's budgets, including revenue 
sources and actual expenses and commitments, are publicly 
available on the Ministry of Finance's (MOF) web site.  In 
addition, the MOF has taken a number of additional steps to 
increase fiscal oversight and streamline budget execution, 
including by establishing a General Accounting Department and 
a Computerized Accounting System (CAS) to link the MOF to 
line ministries and ensure that funds are used for their 
intended purpose. (Source:"Macroeconomic and Fiscal Framework 
for the West Bank and Gaza: Third Review of Progress," 
International Monetary Fund, Staff Report, February 25, 2009, 
pg. 5) 
 
In its public reports, the World Bank encourages donors to 
provide financial assistance directly to the PA through the 
PA,s central treasury account (CTA).  In its report to the 
International Conference In Support of the Palestinian 
Economy for the Reconstruction of Gaza, held on March 2 in 
Sharm al-Sheikh, the Bank wrote: 
 
All expenditures from the CTA are made in accordance with the 
national budget, and are disclosed in monthly reports that 
are available by the 15th of the following month.  All salary 
 
STATE 00038607  002 OF 002 
 
 
payments and major procurements are made by the Ministry of 
Finance with controls applied through a new accounting 
system.(Source:"Fund Channeling Options for Early Recovery 
and Beyond: The World Bank Perspective," The World Bank 
Group, March 2, 2009, pg. 10.) 
 
The World Bank and IMF jointly have agreed to monitor the 
PA's use of donor assistance through the CTA and provide 
donors with regular reports that account for the allocation 
of donor funds and the PA's progress toward meeting the 
development priorities as outlined in the Palestinian Reform 
and Development Plan (PRDP). 
 
In order to provide donors with another transparent method to 
channel assistance to the PA, the World Bank, in coordination 
with the PA, has established a trust fund that helps donors 
support the PA policy agenda expressed in the PRDP over a 
three-year period, 2008-2010.  The PRDP-trust fund (TF) pools 
different donor funds into one administrative mechanism that 
reduces the transaction costs for the PA and participating 
donors, clearly links support to progress on reform, and 
provides regular and reliable disbursements to support 
priority recurrent and project expenditures in the PA budget. 
 The PRDP-TF is audited by external auditors following normal 
World Bank TF management practice.  The PA submits to an 
annual audit regarding the use of PRDP-TF funds. 
CLINTON